4 ms·

With this move all small angel investors are out of biz. What? The startups we fund almost always want to raise more than $150k. I would guess the median star

by pg 16y ago

With this move all small angel investors are out of biz. What? The startups we fund almost always want to raise more than $150k. I would guess the median startup in the last YC batch raised 4 to 5 times that much.

alexsolo 16y ago
The poster is assuming that once a YC startup is funded with a convertible note with no cap and no discount, that all other notes in the round will be at similar terms (and thus small angels won't be able to afford to participate in the deal). Maybe he doesn't realize that you can raise an angel round with different terms for different investors. Personally, I don't think many YC companies in the batch will be able to raise an entire round with no cap, no discount. However, the $150K investment from SV Angel/Yuri will help companies negotiate better deal terms than they would have otherwise obtained.
sinzone 16y ago
I mean...this is for sure the right move to help entrepreneurs, but I'm not sure about the near future. How a small angel investor can invest in conv. debt. without cap and discount? Maybe the no cap/discount are only for SV/Yuri but I guess that in any case startups (even if they need more than 150k) will feel more confortable with some nice cash in the bank, thus they will become more picky and will ask for hyper-strong favorable terms that not anyone will be able to afford (good for entrepreneurs). Therefore a lot of small angel investors can't invest anymore in YC startups (I guess YC will push out 100 startups/year - for sure a big chunk). Thus, they will go somewhere and the one who were able to invest, were able to invest at huge valuations whit less nice terms, so they will get smaller future returns (bad for the future of the ecosystem). To conclude, my concerns are not about now but about the future cause there is a risk that we'll have less angels, then less money available for entrepreneurs. I may be wrong though... (obviously we're talking only about investments into YC startups; investors can always invest elsewhere. So when I said "out of biz" it was more about the "YC related biz")
- pg 16y ago
  How a small angel investor can invest in conv. debt. without cap and discount? That doesn't make it any more expensive to invest; it just decreases the eventual returns. But that variation in returns will be dwarfed by the variation caused by which startup you pick. Which means investing with no cap would be business as usual for angels. Not that they would have to in any case. We don't anticipate that the startups' additional money will have to come with no cap. Ron and Yuri had to do this because to make their fund work like an index fund, they had to get the entire batch, which meant they had to make it an offer no rational founder would refuse.
  - sinzone 16y ago
    it just decreases the eventual returns That's exactly my fear. But that variation in returns will be dwarfed by the variation caused by which startup you pick. Which means investing with no cap would be business as usual for angels. Yes, I agree with the no cap thing. Yet I think smaller discounts mean that you'll get smaller returns whether you pick a "rocket" startup or a "tortoise" one.

by pg 16y ago

alexsolo 16y ago

The poster is assuming that once a YC startup is funded with a convertible note with no cap and no discount, that all other notes in the round will be at similar terms (and thus small angels won't be able to afford to participate in the deal). Maybe he doesn't realize that you can raise an angel round with different terms for different investors. Personally, I don't think many YC companies in the batch will be able to raise an entire round with no cap, no discount. However, the $150K investment from SV Angel/Yuri will help companies negotiate better deal terms than they would have otherwise obtained.

sinzone 16y ago

I mean...this is for sure the right move to help entrepreneurs, but I'm not sure about the near future. How a small angel investor can invest in conv. debt. without cap and discount? Maybe the no cap/discount are only for SV/Yuri but I guess that in any case startups (even if they need more than 150k) will feel more confortable with some nice cash in the bank, thus they will become more picky and will ask for hyper-strong favorable terms that not anyone will be able to afford (good for entrepreneurs). Therefore a lot of small angel investors can't invest anymore in YC startups (I guess YC will push out 100 startups/year - for sure a big chunk). Thus, they will go somewhere and the one who were able to invest, were able to invest at huge valuations whit less nice terms, so they will get smaller future returns (bad for the future of the ecosystem). To conclude, my concerns are not about now but about the future cause there is a risk that we'll have less angels, then less money available for entrepreneurs. I may be wrong though... (obviously we're talking only about investments into YC startups; investors can always invest elsewhere. So when I said "out of biz" it was more about the "YC related biz")

pg 16y ago
How a small angel investor can invest in conv. debt. without cap and discount? That doesn't make it any more expensive to invest; it just decreases the eventual returns. But that variation in returns will be dwarfed by the variation caused by which startup you pick. Which means investing with no cap would be business as usual for angels. Not that they would have to in any case. We don't anticipate that the startups' additional money will have to come with no cap. Ron and Yuri had to do this because to make their fund work like an index fund, they had to get the entire batch, which meant they had to make it an offer no rational founder would refuse.
- sinzone 16y ago
  it just decreases the eventual returns That's exactly my fear. But that variation in returns will be dwarfed by the variation caused by which startup you pick. Which means investing with no cap would be business as usual for angels. Yes, I agree with the no cap thing. Yet I think smaller discounts mean that you'll get smaller returns whether you pick a "rocket" startup or a "tortoise" one.